Being Ready For Unexpected Expenses
Sorry I haven't been posting much lately. Things have been busier at work and a lot more busy outside of work.
Last week, to my dismay, I discovered I had a flat tire. Fortunately, since I was at home, I switched the tire with one of my all seasons.
It wasn't until Monday I took the car in to be looked at. Unfortunately, since now is the peak time for drivers to visit service (change to winter tires, top up winter fluids, etc.), Monday was the earliest available appointment.
Turns out, the seal on the tire broke. The good news, the tire was still good. No punctures. The bad news, in order to repair the tire, they would need to sand the rim and then reseal the tire with some sort of sealant. The cost of this job was $150!
Okay, $150 isn't that much money.
It still got me thinking. Wifey and I, we can afford this $150. We just have to transfer less money into our investment accounts for a pay cheque, but no big deal.
What about the other people living pay cheque to pay cheque? While it might not seem like a lot, $150 for people who do not have the money is a gigantic financial mountain to climb.
What would they need to sacrifice in order to pay off this expense?
Would they need to eat less? Maybe drive less on the weekends? Would they be forced to pay less than the amount owing when the credit card statement arrives?
Sadly, many families would just charge the expense on their credit card or get a pay day loan.
What happens when the unexpected expense is much larger? Like $1,000?
For wifey and I, we have the cash at home to cover this amount.
What happens if the unexpected expense is $5,000?
As I detailed before, in this instance, wifey and I would just sell some of our investments.
If $150 is a mountain to climb, $5,000 is going to the moon.
While some financial experts suggest you keep 3-6 months worth of expenses in cash in case of emergencies, I believe it's a better idea to invest the money and liquidate the investments when an (actual) emergency arises*.
Since the $150 to fix the flat tire isn't much of an emergency, we can hold off on selling our investments.
*A last minute trip to Mexico in order to de-stress from work does not constitute an emergency.
Last week, to my dismay, I discovered I had a flat tire. Fortunately, since I was at home, I switched the tire with one of my all seasons.
It wasn't until Monday I took the car in to be looked at. Unfortunately, since now is the peak time for drivers to visit service (change to winter tires, top up winter fluids, etc.), Monday was the earliest available appointment.
Turns out, the seal on the tire broke. The good news, the tire was still good. No punctures. The bad news, in order to repair the tire, they would need to sand the rim and then reseal the tire with some sort of sealant. The cost of this job was $150!
Okay, $150 isn't that much money.
It still got me thinking. Wifey and I, we can afford this $150. We just have to transfer less money into our investment accounts for a pay cheque, but no big deal.
What about the other people living pay cheque to pay cheque? While it might not seem like a lot, $150 for people who do not have the money is a gigantic financial mountain to climb.
What would they need to sacrifice in order to pay off this expense?
Would they need to eat less? Maybe drive less on the weekends? Would they be forced to pay less than the amount owing when the credit card statement arrives?
Sadly, many families would just charge the expense on their credit card or get a pay day loan.
What happens when the unexpected expense is much larger? Like $1,000?
For wifey and I, we have the cash at home to cover this amount.
What happens if the unexpected expense is $5,000?
As I detailed before, in this instance, wifey and I would just sell some of our investments.
If $150 is a mountain to climb, $5,000 is going to the moon.
While some financial experts suggest you keep 3-6 months worth of expenses in cash in case of emergencies, I believe it's a better idea to invest the money and liquidate the investments when an (actual) emergency arises*.
Since the $150 to fix the flat tire isn't much of an emergency, we can hold off on selling our investments.
*A last minute trip to Mexico in order to de-stress from work does not constitute an emergency.
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